Glossary of trading and tax terms

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z

AGI (Adjusted Gross Income)	Your taxable income after certain allowable adjustments (such as IRA contributions, alimony paid, moving expenses and Keogh account contributions) have been subtracted from your total gross income. This amount is used as a basis to determine the limitations on your itemized deductions and personal exemptions.
AMT (Alternative Minimum Tax)	Created by the IRS to ensure that high-income individuals, corporations, trusts, and estates pay at least a minimum amount of tax, regardless of deductions, credits or exemptions, by adding certain tax-preference items back into adjusted gross income. The AMT is triggered by large numbers of personal exemptions on state and local taxes paid, miscellaneous itemized deductions or medical expenses, and by Incentive Stock Option (ISO) plans.
Accumulation	Buying an investment over a period of time. An institutional investor can do this to avoid making a single substantial purchase that could drive up the market price. A retail investor can do this to dollar-cost average his investment and reduce risk.
Active Income	Salaries, wages, fees, and commissions.
Advance/Decline Line	A technical analysis tool which measures the market's overall direction. Divide the number of rising stocks by the number of falling stocks during a specific time period. If the resulting value is greater than "1", the market is "bullish"; if the value is less than "1", the market is "bearish".
Aggressive	An investment strategy with an above-average risk tolerance, with the expectation of above-average returns. Aggressive strategies usually favor the purchase of stocks of rapidly growing companies, buying on margin, and options trading.
Asset Allocation	In an effort to optimize risk/reward ratio, an investor will divide investments among different kinds of assets, based on his/her specific situation and goals. A key concept in financial planning and money management.
Audit	An IRS examination of an individual or corporate tax return to verify its accuracy. Since there is always the chance of an audit, and the burden of proof is on the filer and not the IRS, investors should keep detailed, accurate records to support all information reported in a tax return.
Automatic Reinvestment Plan	Mutual fund dividends or capital gains are used to purchase additional fund shares. The opposite of a dividend distribution.

Balanced Investment Strategy	A method of portfolio allocation which provides both income and capital appreciation while avoiding excessive risk.
Block Trade	A large quantity of securities being traded at one time, usually 10,000 shares of stock or $200,000 in bonds. Block trades can affect the market price of the security, depending on the liquidity of the market.
Blue Chip Stock	The common stock of a company that has a good reputation, leads its industry and has a long history of consistent growth and dividend payments. Widely held by individual investors and institutions.
Bollinger Bands	A technical analysis technique in which lines are plotted two standard deviations above and below a moving average, and at the moving average itself. These bands will be wider during increased volatility and narrower during decreased volatility. A market approaching the upper band is often considered to be overbought, and a market approaching the lower band to be oversold.
Bond	A type of debt owed by federal and municipal governments and corporations. Interest payments are generally distributed to holders twice a year.
Breadth-of-Market Theory	A technical analysis technique that predicts the strength of the market based on the number of issues that are advancing or declining.
Broad-Base Index	An index created to reveal the performance of the entire market. Common broad-based indexes are the S&P 500, Wilshire 5000, AMEX Major Market Index and the Value Line Composite Index.
Brokerage Account	A customer account at a brokerage. Common types of brokerage accounts are cash-management, margin and discretionary.
Bull Spread	An option strategy allowing an investor to profit from a drop in a security's price, by selling a near-month futures contract and buying a deferred futures contract
Butterfly Spread	An option strategy built on four trades at one expiration date and three different strike prices. For call options, one option at both the high and low strike price are bought, and two options at the middle strike price are sold (and vice versa for put options). This limited risk, limited return strategy is profitable when the underlier remains around the middle strike price.
Buy and Hold	An investment strategy in which stocks are bought and then held for a long period of time, regardless of the market's fluctuations. This strategy is based on the assumption that in the very long term (10-20 years), stock prices will go up and the market as a whole will rise despite any short-term fluctuations due to business cycles or rising inflation. Trade commissions are reduced by buying and selling less often and taxes are often reduced or deferred by holding positions longer.

CAPM (Capital Asset Pricing Model)	An economic model for valuing stocks by relating risk and expected return. Based on the idea that investors demand additional expected return (called the risk premium) if asked to accept additional risk.
CME (Chicago Mercantile Exchange)	An exchange where financial futures, foreign currency futures, commodity futures, and futures options are traded.
COMEX (Commodity Exchange)	The leading U.S. exchange for metals futures and options trading.
Calendar Year	A year that ends on December 31.
Call Option	An option contract that gives the holder the right to buy a certain quantity of an underlying security at a specified price (the strike price) and up to a specified date (the expiration date) from the option writer.
Callable Bond	A bond which the issuer has the right to redeem prior to its maturity date, under certain conditions. Redemption and price guidelines are outlined when the bond is issued, but in most cases, the price will be slightly above the bond's par value and will increase the earlier the bond is called. If a bond is called, the bondholder will be notified by mail and companies typically issue a notification to bondholders in major financial publications as well. The bond will stop paying interest shortly after the bond is called, so there is no reason to hold on to it.
Capital Asset	An item that you own for investment or personal purposes, such as stocks, bonds, or collectibles. The sale of a capital asset results in a capital gain or a capital loss.
Capital Gains	The amount by which an asset's selling price exceeds its initial purchase price. A realized capital gain is the profit resulting from the sale of an investment. An unrealized capital gain is an investment that hasn't been sold yet but would result in a profit if sold. Capital gains generally receive more favorable tax treatment than ordinary gains. Depending on your tax bracket and on how long you held a capital asset, you may pay about one-third to one-half less tax on a capital gain than you would have paid on the same amount of ordinary income.
Capital Gains Distribution	Distributions to investors from a mutual fund company resulting from the sale of capital assets by the fund. The portion of dividends shown as a capital gain distribution is treated as a capital gain (not ordinary dividends) by the investor and receives more favorable tax treatment. Equity funds usually pay out these amounts once a year, while bond funds often include capital gains in their monthly distributions.
Capital Gains Tax	A tax assessed on profits realized from the sale of a capital asset (stock, mutual funds, bonds, options, collectibles, homes, and businesses). The capital gains tax rate is currently 15% for an elapsed time between purchase and sale of more than one year (long-term capital gains), and the ordinary income tax rate for an elapsed time of 1 year or less. (short-term capital gains).
Capital Gains Tax Rate	Different tax rates apply to each type of sale resulting in capital gains. The applicable tax rate is based on the tax bracket you occupy, the length of time you have owned the investment or asset, and the type of capital asset.
Capital Gains Tax Exemption	If an individual or corporation realizes both capital gains and capital losses in the same year, the losses cancel out the gains in the calculation of taxable gains. For this reason, many investors to sell their investments that have lost value near the end of the tax year. For individuals, if losses exceed gains in a year, the losses can be claimed as a tax deduction; the loss amount is subtracted from gross income in order to calculate the taxable income value.
Capital Loss	The loss that results from the sale of a capital asset. Ordinary income can be offset with capital losses up to a maximum of $3,000 per year and excess capital losses can be carried forward indefinitely until exhausted.
Capital Loss Carryover	A capital loss that is not deductible in the current year because it exceeds the annual capital loss "ceiling", but may be deductible in future years. The IRS allows you to carry over any amount above the $3,000 maximum to following tax years.
Carryback	A technique for receiving a refund for back taxes paid, by applying a deduction or credit from a current year to a prior year.
Cash-Management Account	The most basic type of customer account at a brokerage firm. Depending on the brokerage, investors place enough money in the account to cover the trade at the time of its execution (including both the price of the security and the commission) prior to placing the trade, or must pay for the trade by the settlement date (three days).
Clearing Firm	An organization which handles trade confirmation, delivery and settlement of transactions executed on an exchange. These play a key role in ensuring that executed trades are settled within a specified period of time and in an efficient manner. Trade history reports and account statements are often provided by clearing firms, and not from brokerages.
Close a Position	To end an investment. Closing a long position requires selling, and closing a short position requires buying.
Collectible	Property such as rare coins, artwork, and antiques that you collect as an investment. Gains from the sale of collectibles do not qualify for the same new capital gain maximum tax rates as other investments, such as stocks.
Collective Trust	An investment fund formed from the pooling of investments by institutional investors.
Commission	A fee charged by a broker or agent for services in facilitating a transaction, such as the buying or selling of securities. In the case of securities trading, "discount brokers" charge relatively low commissions with no services provided beyond executing trades, and "full service brokers" charge higher commissions but also provide research and investment advisory services.
Commodity	A physical substance (food, grains, and metals) bought or sold by investors through futures contracts. Commodity prices are subject to supply and demand. Foreign currencies, financial instruments and indexes are also traded on commodity exchanges.
Commodity Futures	Contracts to buy or sell a commodity at a specific price and on a specific delivery date.
Conservative	A cautious, risk-averse investment strategy. The preservation of capital is a high priority to a conservative investor.
Contract	The unit of trade for a financial or commodity future.
Cost Basis	The purchase price of a security, including commissions and other expenses. Cost basis is used to determine capital gains and capital losses for tax purposes.
Cover	To repurchase a previously sold contract.
Covered Call	The selling of a call option while holding an equivalent position in the underlying security in an attempt to take advantage of a neutral or declining stock. If the option expires unexercised, the writer keeps the premium. If the holder exercises the option, the stock must be delivered, but, because the writer already owns the stock, risk is limited. The opposite of an uncovered call (when the writer sells a call for a stock that he/she does not already own), a dangerous strategy with unlimited risk.
Covered Put	The selling of a put option while being short an equivalent amount in the underlying security.
Covered Option	An option contract backed by the shares underlying the option. Contracts include covered calls and covered puts.
Covered Straddle	A covered straddle consists of writing a call and a put with the same strike price and expiration against stocks already owned by the holder. Not a true covered position, since assignment for the short put would actually require additional stock.
Currency Risk	The risk that the value of an investment will be affected by changes in exchange rates. For example, if money must be converted into a different currency to make a certain investment, changes in the value of the currency relative to the American dollar will affect the total loss or gain on the investment when the money is converted back.
Current Income	Money that is regularly received from investments, such as dividends and interest.
Current Market Value	The present worth of a portfolio of securities, at current market prices.
Cyclical Stock	The stock of a company which is sensitive to business cycles and whose performance is strongly tied to the overall economy (automobiles, steel and housing industries). Cyclical companies generally make products that are in lower demand during downturns in the economy and higher demand during upswings. The stock price of a cyclical company will often rise just before an economic upturn begins, and fall just before a downturn begins. Investors try to generate large gains by buying the stock at the bottom of a business cycle, just before a turnaround begins.

DAX 100	A price-weighted index of the 100 most heavily traded stocks in the German market
DJIA (Dow Jones Industrial Average)	The most widely used indicator of the overall condition of the stock market, the Dow is a price-weighted average ( all stock prices are added, then divided by the number of stocks) of 30 actively traded blue chip stocks. Officially started by Charles Dow in 1896, it originally consisted of only 11 stocks.
DRIP (Dividend Reinvestment Plan)	An investment plan offered by some corporations whereby shareholders automatically reinvest cash dividends and capital gains distributions. A DRIP investor purchases the first share in the company through a brokerage, then future dividends normally sent as a check will be reinvested to purchase more shares, commission-free. One disadvantage is that the investor has no control over when the reinvestments will take place, and may end up "buying" new shares at less optimal times.
DSP (Direct Stock Purchase Plan)	A program regulated by the SEC which enables a company to sell shares of stock directly to investors, rather than through a broker. DSPs are a good way to invest in smaller amounts as you don't have to be a current shareholder to purchase shares. Commissions are not charged by the company, but they may charge you a small fee in order to set up a stock purchase account.
Day Trader	A very active stock trader who buys and sells the same security very quickly, executes a large number of trades each day, and generally closes all positions at the end of each trading day.
Deductible	An item or expense subtracted from adjusted gross income to reduce the amount of income subject to tax. For example, mortgage interest, state and local taxes, unreimbursed business expenses, and charitable contributions.
Deduction	An expense subtracted from adjusted gross income when calculating taxable income. Personal expenses such as medical costs, mortgage interest, state and local taxes, employee business expenses, and charitable contributions are deductible only if you itemize your deductions. Also referred to as a "tax deduction".
Defensive Investment Strategy	A portfolio allocation strategy with the goal of minimizing the risk of losing principal by concentrating on conservative stocks, bonds and cash equivalents.
Defensive Stock	A stock that tends to remain stable under difficult economic conditions because demand does not decrease as dramatically as it may in other sectors. Defensive stocks tend to lag behind the rest of the market during economic expansion because demand does not increase as dramatically in an upswing. Examples are food, tobacco, oil, and utility stocks.
Deferred Tax	A liability that results from income that has already been earned for accounting purposes but not for tax purposes.
Delivery Price	The price at which deliveries on futures are invoiced, or the price at which the futures contract is settled when delivery is made. This price is determined by the clearing house.
Derivative	A financial instrument whose characteristics and value depend upon the characteristics and value of an underlying security. Examples of derivatives are futures and options. Advanced, risk-tolerant investors often purchase or sell derivatives to manage the risk associated with the underlying security, to protect against fluctuations in value, or to profit from periods of inactivity or decline.
Discretionary Account	A kind of brokerage account which permits the broker to buy and sell shares for the investor without first contacting the investor for approval.
Distribution	The payment of a dividend or capital gain.
Distribution Stock	The sale of a large amount of stock by a single entity over a period of time rather than all at once, to avoid adversely affecting its market price.
Diversification	A portfolio strategy focused on reducing exposure to risk by combining a variety of investments which are unlikely to all move in the same direction. Diversification reduces both the upside and downside potential and allows for more consistent performance under a wide range of economic conditions. A diversified portfolio may contain stocks, bonds and real estate.
Dividends	Distributions from a company to its stockholders, in the form of ordinary dividends, capital gain distributions, or nontaxable distributions. Dividends are usually received in cash, but are also distributed as additional stock, stock rights, property, or services. Companies or brokerage firms report dividend income to you on Form 1099-DIV. Ordinary dividends are fully taxable
Dividend Roll-Over Plan	A strategy to collect a dividend distribution involving the purchase of securities shortly before their ex-dividend dates and the sale of these securities shortly thereafter.
Dollar Cost Averaging	An investment strategy designed to reduce volatility in which securities are purchased in fixed dollar amounts at regular intervals, regardless of what direction the market is moving. As the price rises, fewer units are bought, and as the price falls, more units are bought.
Double Hedging	The hedging of a cash market position by both a futures position and an option position.
Double Taxation	Taxation of the same earnings at two levels. One common example is taxation of earnings at the corporate level and then again at the shareholder dividend level.
Downside Protection	A position that limits the potential loss that would result from a decline in a security or market. An example of downside protection is the purchase of a put option on a stock that is already owned.
Duration	The change in the value of a fixed income security, such as a bond, that will result from a 1% change in interest rates. Duration is stated in years, and is a weighted measure of the length of time the bond will pay out. Unlike maturity, duration takes into account interest payments that occur throughout the course of holding the bond. Investors use duration to measure the volatility of the bond. Generally, the higher the duration (the longer an investor needs to wait for the bulk of the payments), the more its price will drop as interest rates go up. Of course, with the added risk comes greater expected returns. If an investor expects interest rates to fall during the course of the time the bond is held, a bond with a long duration would be appealing because the bond's price would increase more than comparable bonds with shorter durations.
E.C.N. (Electronic Communication Network)	A system that brings buyers and sellers together for the electronic execution of trades. It disseminates information to interested parties about the orders entered into the network and allows these orders to be executed. ECNs internally match buy and sell orders or represent the highest bid prices and lowest ask prices on the open market for NASDAQ stocks. After-hours trading, avoiding market makers (and their spreads), and anonymity (which is often important for large trades) are benefits of using ECNs.
Earnings	Revenues minus cost of goods sold, operating expenses and taxes, over a given period of time. Earnings are often the single most important determinant of a stock 's price, and are important to investors as they indicate expected future dividends, growth potential and capital appreciation. Many young companies report negative earnings as they attempt to grow quickly enough to capture a new market and become more profitable, so these low earnings figures do not necessarily indicate that they are a poor investment choice.
Earnings Yield	Earnings per share for the most recent 12 months, divided by current price per share.
Effective Tax Rate	Actual income tax paid divided by net taxable income before taxes. Expressed as a percentage
Efficient Market Theory	The theory that all market participants receive and act on all of the relevant information as soon as it becomes available, therefore the price of a stock should reflect the knowledge and expectations of all investors. According to the theory, an investor should not be able to beat the market since there is no way for him/her to know something about a stock that isn't already reflected in the stock's price. Proponents of this theory try to match the market's performance instead of trying to identify winning stocks. As there is ample evidence to dispute the basic claims of this theory, most investors don't believe it.
Elliott Wave Theory	Created by Ralph Elliott, this technical analysis technique claims that stock markets follow a pattern of five waves up and three waves down (or occasionally five up and three down in a bull market, and three up and five down in a bear market).
Equity	Ownership interest in a corporation in the form of common stock or preferred stock. It can also be expressed as total assets minus total liabilities, referred to as " shareholder's equity", " net worth" or " book value". In the context of a futures trading account, it is the value of the securities in the account, assuming that the account is liquidated at the going price. In the context of a brokerage account, it is the net value of the account ( the value of securities in the account less any margin requirements).
Ex-Dividend	A security which no longer carries the right to the most recently declared dividend, or the period of time between the announcement of the dividend and the payment. A security becomes ex-dividend on the ex-dividend date (set by the NASD), which is usually two business days before the record date (set by the company issuing the dividend). For transactions during the ex-dividend period, the seller, not the buyer, will receive the dividend. Ex-dividend is usually indicated in newspapers with an "x" next to the stock or mutual fund's name. In general, a stock's price drops the day the ex-dividend period starts, since the buyer will not receive the benefit of the dividend payout till the next dividend date. As the stock gets closer to the next dividend date, the price may gradually rise in anticipation of the dividend.
Exchange Fund	An investment which allows investors to exchange their stock for shares in a diversified portfolio without incurring capital gains taxes. Beneficial to investors with significant holdings in a single stock
Execution	The completion of an order to buy or sell securities
Exemption	A deduction from taxable income for you, your spouse, and your qualifying dependents.
Exercise	For options, to implement the rights of an option, by buying (call options) or selling (put options) the underlying security. For stock, to exchange a right or warrant for the appropriate amount of stock.
Exercise Limit	A restriction on the number of option contracts of a single class which can be exercised in any five-business-day time span. The exercise limit is generally 2000 options per class for a single investor or a group of investors working together.
Expiration Date	The date on which an option, right or warrant expires and becomes worthless if not exercised. For stock options, this is the third Saturday of the month in which the contract expires, or the third Thursday of the month if the third Friday is a holiday.
Extension	The granting of additional time, as in a contract or the filing of a tax return.
Extrapolation	Using historical data to try to determine what will happen in the future.
401(k) Plan	A defined contribution plan offered by a corporation to its employees. Employees are allowed to set aside tax-deferred income for retirement purposes, in some cases matched dollar-for-dollar by the employer. Taking a distribution of the funds before a certain specified age will trigger a penalty tax. The name 401(k) comes from the IRS section describing the program.
FIFO (First-In, First-Out Inventory Valuation Method)	A method of valuing inventory that assumes any inventory you sold was from the first inventory you purchased. When you cannot specifically identify items of inventory and you purchased quantities of inventory at different times for different prices, you must use a method, such as FIFO or LIFO (last-in, first-out) to determine your cost of goods sold and the value of your remaining inventory.
FTSE (Financial Times Stock Exchange)	A 100-stock, market cap weighted index traded on the London Stock Exchange. Similar to the S&P 500 in the United States
FX (Forex)	An over-the-counter market where buyers and sellers conduct foreign exchange transactions.
Face Value	The nominal dollar amount assigned to a security by the issuer. For an equity security, face value is generally a small amount that bears no relationship to the market price, with the exception of preferred stock in which face value is used to calculate dividend payments. For a debt security, face value is the amount repaid to the investor when the bond matures. In the secondary market, a bond's price fluctuates with interest rates. If interest rates are higher than the coupon rate on a bond, the bond will be sold below face value (at a " discount "). If interest rates have fallen, the price will be sold above face value.
Fair Value	For futures, the sum of the value of the underlying securities and the cost of carry (interest earned due to not holding the underlying minus dividends lost due to not holding the underlying).
Fair Market Value	The price an item would sell for, assuming the buyer and a seller both have reasonable knowledge and are not under undue pressure. It is common to compare other similar investments sold near the same time as your investment to determine fair market value.
Filing Status	Filing status identifies the type of taxpayer: single, married filing jointly, married filing separately, and head of household. This status determines filing requirements, the amount of the standard deduction, eligibility for certain credits, and the tax bracket.
Financial Futures	Futures contracts based on financial instruments, such as Treasury Bonds, CDs, currencies or indexes.
Fiscal Year	An accounting period of 365 days (366 in leap years), but not necessarily starting on January 1.
Fixed Income	A security that pays a specific interest rate, such as a bond, money market instrument, or preferred stock.
Foreign Currency Option	An option in which the owner has the right to buy or sell the indicated amount of foreign currency at a specified price before a specific date.
Formula Investing	An investment strategy which follows a specific set of rules, such as dollar cost averaging. This strategy eliminates decisions based on emotion rather than data.
Fortune 500	An annual list of the 500 largest industrial corporations in the U.S., published by Fortune magazine. The corporations are ranked based on metrics such as revenues, profits, and market value.
Forward Averaging	A method of calculating taxes on a lump-sum distribution from a qualified retirement plan. This method enables an investor to pay less than their current tax bracket requires.
Fractional Share	Less than a single share of stock. Fractional shares often result from stock splits, stock dividends and similar actions. The fractional share is either paid out in cash or credited to a dividend reinvestment plan.
Fundamental Analysis	A method used to evaluate the value of a security, by which an investor would carefully examine the company's financials and operations, particularly sales, earnings, growth potential, assets, debt, management, products, and competition figures. Fundamental analysis considers variables that are directly related to the company itself, whereas technical analysis considers the overall state of the market.
Futures	A standardized, transferable, exchange-traded contract that requires delivery of a commodity, bond, currency, or stock index, at a specified price, on a specified future date. The risk to the holder and seller is unlimited. The exchange of assets occurs on the date specified in the contract and, in order to insure that payment will occur, futures have a margin requirement that must be settled daily. Futures contracts can be closed by making an offsetting trade, taking delivery of goods, or arranging for an exchange of goods.
Futures Option	An option on a futures contract.
Gift Tax	A graduated tax assessed against a person who gives money or an asset to another person without receiving fair compensation. A significant amount of each gift is tax-free. The recipient of the gift does not report income except when the gift is a property or stock. The recipient still has to pay taxes if he or she makes a profit from the gift.
GLOBEX	A global after-hours electronic trading system
Gross Dividends	The total dividends you received. Your gross dividends are the sum of any ordinary dividends, capital gains distributions, and nontaxable distributions you received during the tax year.
Gross Earnings	An individual's taxable income before any appropriate adjustments are made.
Gross Income	Your total income before adjustments, deductions, or exemptions.
Growth Strategy	A strategy based on investing in companies which are growing faster than others in the same industry, with the goal of generating capital gains rather than dividends.
Growth Stock	The stock of a company which is growing earnings/revenue more quickly than the rest of its industry, or the market as a whole. Such companies usually pay little or no dividends, preferring to use the income instead to finance further expansion.
Hard Currency	A currency in which investors have confidence, such as that of an economically and politically stable country.
Hedge	An investment made in order to reduce the risk of adverse price movements in a security, by taking an offsetting position in a related security, such as an option or short sale.
Hedge Fund	A fund which is allowed to use aggressive strategies that are unavailable to mutual funds, including selling short, leverage, program trading, swaps, arbitrage, and derivatives. Used generally by wealthy individuals and institutions, hedge funds are restricted by law to no more than 100 investors per fund, and as a result most hedge funds set extremely high minimum investment amounts ( ranging anywhere from $250,000 to over $1 million). Investors in hedge funds pay a management fee as well as a percentage of the profits (usually 20%).
High-Low Index	A moving average of the number of stocks that reach new highs and lows each day. This index is used as a technical analysis tool for measuring the strength of the overall market.
Historical Data	Past information about a company, used to help forecast the company's future. Examples of historical data are historical price, price/earnings ratio, revenues and revenue growth, earnings and earnings growth.
Holding Period	The length of time an asset was held, based on the time elapsed between the purchase trade date and the sale trade date. For tax purposes, this length of time determines whether a gain or loss is short-term or long-term: a long-term holding period is one year and one day, and a short-term holding period is less than one year.
INSTINET (Institutional Networks Corp)	The name for one particular ECN that enables trades without a broker/dealer by matching buyers and seller directly over an electronic system.
IRA (Individual Retirement Account)	A tax-deferred retirement account for an individual that permits the individual to set aside up to $2,000 per year, with earnings tax-deferred until withdrawals begin at age 59 1/2 or later. IRAs can be established at a bank, mutual fund, or brokerage. Only those who do not participate in a pension plan at work or who do participate and meet certain income guidelines can make deductible contributions to an IRA. All others can make contributions to an IRA on a non-deductible basis. Such contributions qualify as a deduction against income earned in that year and interest accumulates tax-deferred until the funds are withdrawn.
IRC (Internal Revenue Code)	All federal tax laws. Originally written in 1939, and thoroughly revised in 1954.
IRS (Internal Revenue Service)	The federal agency responsible for administering and enforcing the Treasury Department's revenue laws, through the assessment and collection of taxes, determination of pension plan qualification, and related activities.
IRS Form 10-K	An audited annual report required by the SEC which is sent to the shareholders of a public company or mutual fund, reporting the financial results for the year and commenting on the outlook for the future. The balance sheet, income statement, cash flow statement and description of company operations are included in the document. A Form 10-K is sent along with the annual report which contains more detailed financial information. All 10-Ks for public companies and mutual funds incorporated in the U.S. are available on the SEC's website for free.
IRS Form 10-Q	An unaudited quarterly report required by the SEC for all U.S. public companies, reporting the financial results for the quarter and noting any significant changes or events in the quarter. The Form 10-Q contains financial statements, a discussion from the management, and a list of "material events" that have occurred with the company (such as a stock split or acquisition).
IRS Form 1040	U.S. Individual Income Tax Return. The basic form you file annually with the IRS. If you do not have a complex tax return, you may be able to use the simplified versions: Form 1040A or 1040EZ.
IRS Form 1040A	U.S. Individual Income Tax Return. A simplified version of Form 1040. You can usually use this form if you do not itemize or own a business and your taxable income is under $50,000.
IRS Form 1040EZ	The simplest version of Form 1040, used by taxpayers with no deductions, no adjustments, income of only wages, interest, or unemployment compensation, and no dependents.
IRS Form 1040X	An amendment to a prior IRS filing is submitted by using Form 1040X. Amendments to correct mistakes on 1040 returns for the previous three years are eligible for filing.
IRS Form 1099	The IRS form for the annual reporting of dividend and interest payments made to investors. Companies, mutual funds, banks and other financial institutions report an investor 's dividend and interest directly to the IRS with this form.
IRS Form 1099-DIV	A statement summarizing your dividend income, sent by your broker or a company whose stock you own. This statement reports the dividends received, income tax withheld from dividends, and foreign taxes paid on dividends. Your broker may also separately report amounts earned from mutual funds, purchases and sales or stock, purchases and sales of shares in mutual funds, and a summary of the investments you still own at the end of the year.
IRS Form 1099-INT	A statement summarizing your interest income for the year, from payers of interest income such as banks and savings institutions. This form is also used to report early withdrawal penalties, federal tax withheld, and foreign tax paid.
IRS Form 4797	For securities, business traders who have elected mark-to-market accounting report capital gains and losses on Form 4797 Part II. Securities traders rarely hold positions for more than 12 months, so the bulk of their trading gains are short-term capital gains subject to the ordinary income tax rates.
IRS Form 6781	For commodities, business traders report their capital gains and losses on Form 6781 (Section 1256 contracts). This allows them to split the gains and losses 60/40 on Schedule D: 60 percent long-term, 40 percent short-term. This 60/40 split gives commodities traders an advantage over securities traders.
IRS Form W-2	The form your employer sends to you and the IRS at the end of the year to report your annual wages, taxes withheld, and other information.
IRS Form W-4	A tax form prepared by an employee for an employer which enables the employer to determine the amount of taxes to be withheld for the employee. The employee indicates exemptions (if any) and their Social Security number on the form.
IRS Form W-9	A tax form which certifies an individual's tax identification number. This form must be present in a brokerage account's files to avoid backup withholding by the IRS
IRS Schedule C	Self-employed individuals, such as those who operate a business or profession as a sole proprietor, partner in a partnership, independent contractor, or consultant, must report income on Schedule C of Form 1040.
IRS Schedule D	For securities, business traders report capital gains and losses on Schedule D (default cash accounting method). Securities traders rarely hold positions for more than 12 months, so the bulk of their trading gains are short-term capital gains subject to the ordinary income tax rates.
ITS (Intermarket Trading System)	A computer network that connects several major U.S. stock exchanges, enabling investors to choose the best market for a given transaction.
ISO (Incentive Stock Option)	A stock option type that is taxed when the option stocks are sold, rather than when received or exercised.
In and Out	The purchase and sale of a security within a short period of time ( often a single trading session).
Income Coverage	Net income from a portfolio of investments divided by total interest payments and preferred dividends.
Income Exclusion Rule	An IRS rule which excludes certain items from taxable income, such as child support, welfare payments, life insurance benefits, and income on tax-exempt investments.
Income Stock	A stock with a history of paying high dividends consistently.
Income Tax	Annual tax levied on an individual's or corporation's net profit by the Federal government, most states, and some local governments.
Indenture	A written agreement between the issuer of a bond and the bondholders, specifying interest rate, maturity date, convertibility, and other terms.
Independent Broker	NYSE member who executes orders for other brokers who temporarily have more orders than they can handle.
Index	A statistical indicator which provides a representation of the value of securities which constitute it. Indices often serve as barometers for a given market or industry and benchmarks against which financial or economic performance is measured.
Index Arbitrage	A strategy from which an investor can profit from temporary discrepancies between the prices of the stocks comprising an index and the price of a futures contract on that index. By buying either the stocks or the futures contract and selling the other, an investor can sometimes exploit market inefficiency for a profit. Generally, only large money managers are able to profit from index arbitrage due to the large transaction costs involved in simultaneously buying and selling many different stocks and futures, and the need for sophisticated computer programs to track the large number of stocks and futures involved.
Index Fund	A passively managed mutual fund that attempts to mirror the performance of a specific index, such as the S&P 500. Index fund expenses tend to be lower than those of actively managed funds, as portfolio decisions are automatic and transactions are infrequent.
Index Option	An option whose underlying security is an index. If exercised, settlement is made by cash payment, since physical delivery is not possible.
Insurance Company Dividend	One of a series of periodic (usually annual) payments made to a cash value life insurance policyholder. The payments are considered to be a partial refund of the policyholder's premium and are therefore tax-free income.
Interest Deduction	A tax deduction allowed for certain interest expenses, such as those on a home mortgage or a margin account.
Interest Rate Futures	Futures contract whose underlying security is a debt obligation.
Interest Rate Option	Option contract whose underlying security is a debt obligation.
Interim Dividend	A dividend which is declared and distributed before the company's annual earnings have been calculated (often quarterly).
Intrinsic Value	The perceived actual value of a security, rather than its market price or book value. For options, the amount by which an option is in the money, calculated by taking the difference between the strike price and the market price of the underlying security.
Investment Fund	A firm that invests the pooled funds of retail investors for a fee. There are two types of investment companies: open-end (mutual funds) and closed-end (investment trusts). By aggregating the funds of a large number of small investors into a specific investment, an investment company gives individual investors access to a wider range of securities. Individual investors are also not hampered by high trading costs, as the investment fund is able to gain economies of scale in operations.
Itemized Deductions	Expenses that can be deducted to reduce your income after your adjusted gross income (AGI) and before your income tax calculation, in accordance with IRS regulations. Itemized deductions include medical expenses, taxes, deductible interest, charitable contributions, casualty and theft losses, unreimbursed employee expenses, and miscellaneous deductions.
Junk Bond	A high- risk, non-investment-grade bond with a low credit rating, usually BB or lower. It usually has a high yield.
Keogh Plan	A tax-deferred qualified retirement plan for self-employed individuals and unincorporated businesses.
Knock-Out Option	An option that becomes worthless in the event that the underlying commodity or currency crosses a certain price level.
LIFO (Last-In, First-Out Inventory Valuation Method)	A method of valuing your inventory that assumes any inventory you sold was from the last inventory you purchased. When you cannot specifically identify items of inventory, and you purchased quantities of inventory at different times for different prices, you must use a method such as LIFO or FIFO (first-in, first-out inventory valuation method) to determine your cost of goods sold and the value of your remaining inventory.
Lagging Indicator	An economic indicator that changes after the overall economy has changed. Examples are labor costs, business spending, the unemployment rate, the prime rate, outstanding bank loans, and inventory book value.
Leading Indicator	An economic indicator that changes before the economy has changed. Examples of leading indicators include production workweek, building permits, unemployment insurance claims, money supply, inventory changes, and stock prices. The Federal government decides what to do about interest rates by watching leading indicators.
Leverage	The degree to which an investor or business is utilizing borrowed money. Leverage can increase a shareholder's return on investment and provide tax advantages associated with borrowing. However, companies that are highly leveraged may be at risk of bankruptcy if they are unable to make payments on their debt, and may have difficulty finding new lenders in the future.
Like-Kind Exchange	A tax-deferred exchange of similar items you use in your business or hold for investment, other than securities, stocks and bonds. The items must be the same type, but they do not need to be of the same grade or quality.
Load	A sales charge added to the purchase and/or sale price of some mutual funds and annuities.
Long	The state of actually owning a security, contract, or commodity.
Long Squeeze	Situation in which investors who hold long positions feel the need to sell into a falling market to cut their losses. This produces a further decline in market prices.
Long Straddle	A straddle in which a long position is taken in both a put and a call option.
Long-Term	A long period of time, or for a buy and hold investment strategy.
Long-Term Capital Gain	Your profit from the sale of a capital asset that you held for more than 12 months. A long-term gain usually results in a lower tax rate than a short-term gain
Long-Term Capital Loss	Your loss from the sale of a capital asset that you held for more than 12 months.
Lookback Option	A call or put option whose strike price is not determined until the option is exercised. At the time of exercise, the holder can exercise the option at any underlying price that has occurred during the option's life. In the case of a call, the buyer will choose the lowest price, and in the case of a put, the buyer will choose the highest price. The premium on such options tends to be high since it gives the buyer great flexibility, and the writer has to take on a lot of risk.
Lot	Multiple securities held or traded together. For stocks, usually in units of 10. For bonds, usually in units of 5. Odd lots contain less than 100 shares of a stock and often generate higher commission fees.
MACD (Moving Average Convergence/Divergence)	A technical analysis term for the crossing of two exponentially smoothed moving averages.
MBS (Mortgage-Backed Security)	A security backed by a pool of mortgages, such as those issued by Ginnie Mae and Freddie Mac.
MVI (Market Volatility Index)	An index designed to track market volatility and indicate investor sentiment, based on option activity. High values imply pessimism and low values imply optimism.
Margin	The amount of equity required for an investment in securities purchased on credit. Buying on margin is using money borrowed from a broker/dealer to purchase securities.
Margin Account	A sophisticated customer account at a brokerage firm which allows an investor to buy securities with money borrowed from the broker. Margin accounts generally offer low interest rates on margin loans to encourage investors to buy on margin. The Federal Reserve limits margin borrowing to at most 50% of the amount invested, but some brokerages have even stricter requirements.
Margin Call	A call from a broker to a customer (maintenance margin call) or from a clearing house to a clearing member (variation margin call), demanding the deposit of cash or marginable securities to satisfy the Regulation T requirements or the house requirement for the purchase/ short sale of securities, or to cover an adverse price movement.
Marginal Tax Rate	The tax rate paid on the last dollar of one's income. In a graduated tax system, this rate will be equal to or higher than the tax rate paid on the person's entire income, since the tax rate is lower for the first dollars of income than for subsequent dollars of income.
Mark-to-Market	Recording the price or value of a security, portfolio, or account on a daily basis, to calculate profits and losses or to confirm that margin requirements are being met. Also refers to the tax accounting method of taking an open position at the end of the year and handling it as if had been sold, resulting in the recognition of income or loss on positions that have not yet been closed out. Traders wishing to use this tax strategy in the current year must have elected mark-to-market (IRS Section 475) by the filing date of the previous year.
Market Maker	A brokerage or bank that maintains a firm bid and ask price in a given security by standing ready, willing, and able to buy or sell at publicly quoted prices. These firms display bid and offer prices for specific numbers of specific securities, and if these prices are met, they will immediately buy for or sell from their own accounts. Market makers are very important for maintaining liquidity and efficiency for the particular securities that they make markets in. At most firms, there is a strict separation of the market-making side and the brokerage side, since otherwise there might be an incentive for brokers to recommend securities simply because the firm makes a market in that security.
Market Price	If the security is on an exchange, the security's last reported sale price. If the security is "over-the-counter", its current bid and ask prices. Also referred to as market value.
Market Risk	Risk which is common to an entire class of assets or liabilities. The value of investments may decline over time due to economic changes or other events that impact large portions of the market. As different portions of the market tend to under perform at different times, an investor can protect against systematic risk by using asset allocation and diversification in a portfolio.
Marketable Securities	In general, stocks and bonds that are easily sold and converted to cash, with a readily determined fair market value.
Miscellaneous Itemized Deductions	Most miscellaneous itemized deductions are job-related expenses or investment expenses. These are only deductible to the extent that they exceed 2% of your adjusted gross income. Reported on IRS Schedule A - Itemized Deductions.
Momentum	The perceived strength behind a price movement. Momentum investors seek to take advantage of upward or downward trends in stock prices or earnings. They believe that these stocks will continue to head in the same direction because of the momentum that is already behind them. This high-risk strategy involves market timing.
Momentum Indicator	A technical analysis indicator which attempts to predict future market trends based on recent price and volume data. The rate of change of the security's price is calculated by comparing the current price of a security to a historical price during a specific time period. An analyst uses this rate to see where the current price stands in relation to historical trends, and to determine strategy.
Money Management	The process of managing money, including investments, budgeting, banking, and taxes.
Money Market Fund	An open-end mutual fund which invests only in money markets with the main goal of preservation of capital accompanied by modest dividends. These funds invest in short term debt obligations such as Treasury bills, certificates of deposit, and commercial paper. Although money market mutual funds are among the safest types of mutual funds, it still is possible for them to fail. The biggest risk involved in money market fund investing is the risk that inflation will outpace the funds' returns, eroding the purchasing power of the investor's money.
Mortgage Interest Deduction	A federal tax deduction granted for interest paid on a mortgage used to buy, build, or renovate a residence. The deduction is intended to encourage renters to become homeowners, which in turn is thought to promote upstanding citizenship and reduce crime.
Municipal Bond	A bond issued by a state or local government. Interest you earn on a municipal bond is not subject to federal income tax, but may be taxable by your state. Selling a municipal bond incurs a capital gain or a capital loss.
Mutual Fund	An open-ended fund operated by an investment company that raises money from shareholders, invests in a group of assets according to stated objectives, and sells shares of the fund to the public. Money received from the sale of shares is used to purchase various investments such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund, and are free to sell their shares at any time. Investors can benefit from mutual fund investing as it can provide diversification, professional money management, liquidity and convenience.
NYSE (New York Stock Exchange)	The oldest and largest stock exchange in the U.S., located on Wall Street in New York City, responsible for setting policy, supervising member activities, listing securities, overseeing the transfer of member seats, and evaluating applicants. The NYSE still uses a large trading floor in order to conduct its transactions, on which the representatives of buyers and sellers (brokers) meet and shout out prices at one another in order to strike a deal (referred to as the "open outcry" system). In order to facilitate the exchange of stocks, the NYSE employs individuals called specialists who are assigned to manage the buying and selling of specific stocks and to buy those stocks when no one else will. The NYSE applies the most stringent set of requirements to listed companies, compared to those of other exchanges.
NASD (National Association of Securities Dealers)	A self regulatory securities industry organization responsible for the operation and regulation of the Nasdaq stock market and OTC markets. The NASD investigates complaints against member firms to ensure that all members adhere to SEC standards, and has the power to expel its members from an exchange in the case of wrongdoing. In this case, it cannot take legal action against the member, but can report the wrongdoing to the SEC. The association is run by a Board that is comprised of representatives from the securities industry and the public.
NAV (Net Asset Value)	The dollar value of a single mutual fund share, based on the value of the underlying assets of the fund minus its liabilities, divided by the number of shares outstanding. Calculated at the end of each business day.
NSO (Non-Qualified Stock Option)	A type of employee stock option which is less restrictive and generally easier to set up and administer. This type is less advantageous for the employer from a tax standpoint than an incentive stock option (ISO).
NVI (Negative Volume Index)	An index that carefully analyzes trading sessions where the trading volume decreased significantly from the previous trading day, in an effort to determine if experienced investors are moving the markets.
Nasdaq	A computerized system established by the NASD to facilitate trading by providing broker/dealers with current bid and ask price quotes on OTC stocks and some listed stocks. All trading on the Nasdaq exchange is executed over a network of computers and telephones, not on a physical trading floor with market specialists. Orders for stock are sent out electronically on the Nasdaq, where market makers list their buy and sell prices. Once a price is agreed upon, the transaction is executed electronically. "Nasdaq" was an acronym for the National Association of securities Dealers Automated Quotation system.
Nasdaq Composite Index	An index of all common stocks listed on Nasdaq. The index primarily tracks technology stocks, and is therefore not a good indicator of the overall market. Unlike the Dow Jones Industrial Average (DJIA), the Nasdaq is market value-weighted, taking into account the total market capitalization of the companies it tracks and not just share prices.
Net Income	For a business, the same as net profit. For an individual, gross income minus incurred expenses, used to calculate income tax owed.
Net Position	The difference between total open long and open short positions in a given security held by an individual.
Nikkei Index	Index of 225 leading stocks traded on the Tokyo Stock Exchange.
Nominee Dividends	Dividends that you receive on behalf of another person. For instance, if your name and taxpayer identification number are on a brokerage account, but all or part of the stock actually belongs to someone else, you must file a Form 1099-DIV and the other person must report the dividends on his or her own tax return. You then report a nominee dividend adjustment to reduce your taxable dividends.
Nominee Interest	Interest that you receive on behalf of another person. For instance, if your name and taxpayer identification number are on a savings account, but all or part of the savings account actually belongs to someone else, you must file a Form 1099-INT and the other person must report the interest on his or her own tax return. You then report a nominee interest adjustment to reduce your taxable interest.
Non-Taxable Distribution	A dividend you receive from a company as a return of your investment in the stock, not from company earnings. If you receive a nontaxable distribution, you must reduce your basis in the stock by the amount of the distribution. When you sell the stock, your gain or loss will be calculated using the adjusted basis.
OEX	Abbreviation for the Standard & Poor's 100, an index of stocks whose options trade on the Chicago Board Options Exchange.
OID (Original Issue Discount)	The type of bond discount that occurs when a bond is issued for a price less than its face amount or principal amount (generally the difference between the principal amount and the issue price).
Odd-Lot Theory	A technical analysis theory based on using odd-lot trading behavior as a contrary indicator, under the assumption that odd lots are traded primarily by small investors who are on average less experienced than institutional investors. The theory has declined in popularity as historical data has failed to support it.
Open a Position	To open an investment. Opening a long position requires buying, and opening a short position requires selling.
Option	The right, but not the obligation, to buy (for a call option) or sell (for a put option) a specific amount of a given stock, commodity, currency, index, or debt, at a specified price (the strike price) during a specified period of time. Each option has a buyer, called the holder, and a seller, known as the writer. If the option contract is exercised, the writer is responsible for delivering the shares to the appropriate party or settling in cash if the security cannot be delivered. When an option is not exercised, it simply expires. The holder loses the money spent to purchase the option, and for the writer, the potential loss is unlimited unless the contract is covered (the writer already owns the underlying security). Options are used most frequently as either leverage or protection. As leverage, options allow the holder to control equity in a limited capacity for a fraction of what the shares would cost. The difference can be invested elsewhere until the option is exercised. As protection, options can guard against price fluctuations in the near term because they provide the right to acquire the underlying stock at a fixed price for a limited time. Risk is limited to the option premium if the underlying security is not owned.
Option Holder	One who has purchased an option but has not exercised or sold it.
Option Premium	The amount per share that an option buyer pays to the seller. The option premium is primarily affected by the difference between the stock price and the strike price, the time remaining for the option to be exercised, and the volatility of the underlying stock. Affecting the premium to a lesser degree are factors such as interest rates, market conditions, and the dividend rate of the underlying stock. Because the value of an option decreases as its expiration date approaches and becomes worthless after that date, options are called wasting assets. The total value of an option consists of intrinsic value, which is simply how far "in the money" an option is, and time value, which is the difference between the price paid and the intrinsic value. Understandably, time value approaches zero as the expiration date nears.
Option Writer	The seller of an option contract. also called grantor or writer.
Ordinary Income	Income that does not qualify as a capital gain. Wages, interest, dividends, and net income from a business are examples of ordinary income.
Ordinary Loss	A loss that is not a capital loss and that is fully deductible against ordinary income.
Over-the-Counter	A security which is not traded on an exchange, generally due to an inability to meet listing requirements. Broker/dealers negotiate directly with one another over computer networks and by phone ( monitored by the NASD) for OTC stocks. These are usually very risky as they are not considered large or stable enough to trade on a major exchange. They also tend to trade infrequently, making the bid-ask spread larger. Research for OTC stocks is more difficult to obtain.
Overbought/Oversold Indicator	A technical analysis tool that attempts to define when prices have moved too far and fast in either direction. This indicator is calculated based on a moving average of the difference between the number of advancing and declining issues over a certain period of time. The analyst will sell if the market is considered overbought, and vice versa.
PVI (Positive Volume Index)	An index that analyzes carefully trading sessions where the trading volume has increased significantly from the previous day , in an effort to determine how experienced investors are trading. Unusually high volume is considered an indication that inexperienced investors are moving the markets.
Passive Income	Income derived from business investments in which the individual is not actively involved, such as a limited partnership.
Portfolio Insurance	A strategy of hedging a stock portfolio against market risk by selling stock index futures short or buying stock index put options.
Position Trader	A commodities trader who takes a long-term " buy and hold" approach. "Long-term" refers to holding until the delivery date is close (5 to 7 months) in commodities trading.
Premium	The amount that the buyer of an option pays to the seller, or the amount by which a bond or stock sells above its par value.
Premium Income	Income received from selling an option.
Price/Book Ratio	A stock's capitalization divided by its book value. The value is the same whether the calculation is done for the whole company or on a per-share basis. This ratio compares the market's valuation of a company to the value of that company as indicated on its financial statements. The higher the ratio, the higher the premium the market is willing to pay for the company above its hard assets. A low ratio may signal a good investment opportunity, but is less meaningful for companies such as those in technology sectors as these have hidden assets such as intellectual property which are of great value, but not reflected in the book value. Price to book ratio is generally of more interest to value investors than growth investors.
Price/Earnings Ratio	The most common measure of how expensive a stock is. The P/E ratio is equal to a stock's market capitalization divided by its after-tax earnings over a 12-month period, usually the trailing period but occasionally the current or forward period. The value is the same whether the calculation is done for the whole company or on a per-share basis. The higher the P/E ratio, the more the market is willing to pay for each dollar of annual earnings. The last year's price/earnings ratio (P/E ratio) would be actual, while current year and forward year price/earnings ratio (P/E ratio) would be estimates, but in each case, the "P" in the equation is the current price. Companies that are not currently profitable (that is, ones which have negative earnings) don't have a P/E ratio at all.
Price Spread	An option strategy involving the simultaneous purchase and sale of options of the same class and expiration date but different strike prices.
Profit-Sharing	An arrangement in which an employer shares some of its profits with its employees. The compensation can be stocks, bonds, or cash, and can be immediate or deferred until retirement. Contributions are determined by a formula to allocate the overall contribution and distribution of accumulated funds after the retirement age. Unless the plans are defined as an elective deferral plan, the contributions are not tax deductible. Contributions and earnings can grow tax-deferred until withdrawal.
Put Bond	Uncommon type of bond which allows the bondholder to redeem the bond at a specified price prior to maturity. Investors might choose to do this if interest rates increase after the bond was issued. The bond will restrict the dates when this can be done.
Put Option	An option contract that gives the holder the right to sell a certain quantity of an underlying security to the writer of the option, at a specified price (strike price) up to a specified date (expiration date). Also refers to the act of exercising a put option.
QQQ	The Nasdaq 100 Index Tracking Stock. The QQQ is an Exchange Traded Fund which allows investors to essentially invest in all of the stocks that make up the Nasdaq 100 in a single security unit.
Qualitative Analysis	Determining the value of an investment, especially a stock, by examining its non-numeric characteristics, such as management, employee morale, customer loyalty, and brand value.
Quantitative Analysis	The process of determining the value of a security by examining its numerical, measurable characteristics such as revenues, earnings, margins, and market share.
Quote	The highest bid or lowest ask price available on a security at any given time.
RSI (Relative Strength Index)	A technical analysis indicator which measures the magnitude of gains over a given time period against the magnitude of losses over that period. The equation is RSI = 100 - 100 / (1 + RS) where RS = (total gains / n) / (total losses / n) and n = number of RSI periods. The value can range from 1 to 100. Some technical analysts believe that a value of 30 or below indicates an oversold condition and that a value of 70 or above indicates an overbought condition.
Random Walk Theory	An investment theory which claims that market prices follow a random path up and down, without any influence by past price movements, making it impossible to predict with any accuracy which direction the market will move at any point. Investors who believe in the random walk theory feel that it is impossible to outperform the market without taking on additional risk, and believe that neither fundamental analysis nor technical analysis have any validity. Some proponents of this theory do acknowledge that markets move gradually upward in the long run.
Redemption	The return of an investor's principal in a security, such as a bond, preferred stock or mutual fund shares, at or prior to maturity.
Reinvestment Risk	The risk resulting from the fact that interest or dividends earned from an investment may not be able to be reinvested in such a way that they earn the same rate of return as the invested funds that generated them. For example, falling interest rates may prevent bond coupon payments from earning the same rate of return as the original bond.
Relative Strength	A stock's price change over a period of time relative to that of a market index, such as the S&P 500. The relative strength of a stock is calculated by taking the percentage price change of a stock over a set period of time and ranking it on a scale of 1 to 100 against all other stocks on the market, with 1 being worst and 100 being best. Some technical analysts ( especially momentum investors) like stocks with high relative strength rankings, believing that stocks which have recently gone up are more likely to continue going up. Other technical analysts believe that a very high relative strength can be an indication that the stock is overbought and is ready to fall. Relative strength is really a "rear view mirror" metric, measuring only how the stock has done in the past, not how it will do in the future.
Resistance	Inability of a stock to rise above a certain price (resistance level).
Retained Earnings	Earnings not paid out as dividends but instead reinvested in the core business or used to pay off debt. Also referred to as "accumulated earnings".
Return	The annual return on an investment, expressed as a percentage of the total amount invested. Also referred to as "rate of return".
Reverse Split	A stock split which reduces the number of outstanding shares and increases the per-share price proportionately. This is usually an attempt by a company to disguise a falling stock price, since the actual market capitalization of the stock does not change at all. As many U.S. stock exchanges do not allow companies with a stock price of less than $1 to remain listed, certain companies must undertake reverse splits if they want to remain listed.
Risk	The quantifiable likelihood of loss or less-than-expected returns.
Risk Management	The process of analyzing exposure to risk and determining how to best handle such exposure.
Risk Tolerance	An investor's ability to handle declines in the value of his/her portfolio.
S&P 100	Standard & Poor's 100. This index is comprised of stock from the 100 companies which have the largest market capitalization of all companies in the S&P 500.
S&P 500	Standard & Poor's 500. A basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value, and its performance is thought to be representative of the stock market as a whole ( over 70% of all U.S. equity is tracked by the S&P 500). The index selects its companies based upon their market size, liquidity, and sector. Most of the companies in the index are solid mid cap or large cap corporations. Most experts consider the S&P 500 one of the best benchmarks available to judge overall U.S. market performance.
Section 1256 Contract	Any regulated futures contract ( commodities and futures contracts on U.S. commodities exchanges), foreign currency contracts (traded on exchanges, but not including FOREX or inter-bank trading), non-equity options or dealer equity options ( "broad-based indexes" including but not limited to the NASDAQ 100, Dow and S&P futures contracts), and any dealer securities contracts. Section 1256 contracts are marked-to-market (MTM) each day and at year-end. This means that you report both realized and unrealized gains and losses.
Settlement	Delivery of certificates in exchange for payment after a securities trade.
Shareholder	One who owns shares of stock in a corporation or mutual fund. For corporations, along with the ownership comes a right to declared dividends and the right to vote on certain company matters, including the board of directors.
Short	The state of having sold a stock short without having covered it (repurchased a previously sold contract).
Short Sale Rule	SEC rule requiring short sales to be made only on an uptick or zero-plus tick. The purpose of the rule is to prevent traders from being able to force prices downward by borrowing stock and then selling it.
Short Market Value	The total value of all securities that have been shorted in a given account. Essentially, this is the amount that has been borrowed in order to sell securities that were not owned before the sale.
Short Selling	Borrowing a security or commodity futures contract from a broker and selling it, with the understanding that it must later be bought back and returned to the broker. Short selling is a technique used by investors who try to profit from the falling price of a stock. The investor's broker will borrow the shares from someone who owns them with the promise that the investor will return them later. The investor immediately sells the borrowed shares at the current market price. If the price of the shares drops, he/she "covers the short position" by buying back the shares, and his/her broker returns them to the lender. The profit is the difference between the price at which the stock was sold and the cost to buy it back, minus commissions and expenses for borrowing the stock. But if the price of the shares increase, the potential losses are unlimited.
Short Squeeze	A situation in which the price of the stock rises and investors who sold short rush to buy it to cover their short position and cut their losses. As the price of the stock increases, more short sellers feel compelled to cover their positions. The opposite of a long squeeze.
Short Straddle	A straddle in which a short position is taken in both a put and a call option.
Short-Term Capital Gain	Your profit from the sale of a capital asset that you held for one year or less. A short-term gain usually results in a higher tax rate than a long-term gain.
Short-Term Capital Loss	Your loss from the sale of a capital asset that you held for one year or less.
Single Stock Futures	A single transaction equivalent to the simultaneous sale of a put and purchase of a call for a given stock. Single stock futures essentially allow investors to sell a stock short without waiting for a downtick as would otherwise be required.
Soft Currency	A country's currency which is not acceptable in exchange for currency of other countries, due to unrealistic exchange rates.
Speculation	Taking large risks, especially with respect to trying to predict the future. Also refers to gambling, in the hopes of making quick, large gains.
Spread	The difference between the current bid and the current ask (in over-the-counter trading) or offered (in exchange trading) of a given security
Spread Option	The purchase of one option and the simultaneous sale of a related option, such as two options of the same class but different strike prices and/or expiration dates.
Spot Market	A market in which commodities, such as grain, gold, crude oil, or RAM chips, are bought and sold for cash and delivered immediately.
Spot Price	The present delivery price of a given commodity being traded on the spot market.
Standard Deduction	A fixed deduction allowed to taxpayers who do not itemize.
Stochastic Oscillator	A technical indicator which compares a stock's closing price to its price range over a given period of time. The belief is that in rising market stocks will close near their highs, while in a falling market they will close near their lows.
Stock	An investment instrument that signifies an ownership position (called equity) in a corporation, and represents a claim on its proportional share in the corporation's assets and profits. Ownership in the company is determined by the number of shares a person owns divided by the total number of shares outstanding. Most stock also provides voting rights, which give shareholders a proportional vote in certain corporate decisions.
Stock Dividend	A dividend paid as additional shares of stock rather than as cash. If dividends paid are in the form of cash, those dividends are taxable. When a company issues a stock dividend, rather than cash, there usually are not tax consequences until the shares are sold.
Stock Option	An option in which the underlying security is the common stock of a corporation, giving the holder the right to buy or sell its stock, at a specified price, by a specific date.
Stock Split	An increase in the number of outstanding shares of a company's stock, such that proportionate equity of each shareholder remains the same. A corporation whose stock is performing well may choose to split its shares, distributing additional shares to existing shareholders. The most common stock split is two-for-one, in which each share becomes two shares. The price per share immediately adjusts to reflect the stock split, since buyers and sellers of the stock all know about the stock split (in this example, the share price would be cut in half). Some companies decide to split their stock if the price of the stock rises significantly and is perceived to be too expensive for small investors to afford.
Straddle	The purchase or sale of an equal number of puts and calls, with the same strike price and expiration dates. A straddle provides the opportunity to profit from a prediction about the future volatility of the market. Long straddles are used to profit from high volatility. Long straddles can be effective when an investor is confident that a stock price will change dramatically, but cannot predict the direction of the move. Short straddles represent the opposite prediction, that a stock price will not change.
Strangle	An options strategy involving a put option and a call option with the same expiration dates and strike prices which are out of the money. The investor profits only if the underlying security moves dramatically in either direction.
Strap	An option contract created by being long in one put option and two call options with the same underlying security, strike price, and maturity date. The contract can usually be bought at a lower total premium than the three options could be individually.
Strike Index	The price at which the buyer of an index option can buy or sell the underlying stock index.
Strike Price	The specified price on an option contract at which the contract may be exercised, upon which a call option buyer can buy the underlying security or a put option buyer can sell the underlying security. The buyer's profit from exercising the option is the amount by which the strike price exceeds the spot price (in the case of a call), or the amount by which the spot price exceeds the strike price (in the case of a put). In general, the smaller the difference between spot and strike price, the higher the option premium. Also called exercise price.
Swing Trade	A trading strategy that seeks to create profits by holding positions for relatively short periods, often one day to one week. This is similar to day trading, but with a slightly longer time horizon.
Systemic Risk	Risk that affects an entire financial market or system, and not just specific participants. It is not possible to avoid systemic risk through diversification.
Tax Bracket	The level of income tax of a given individual, as indicated by the amount of taxes he/she pays on his/her final dollar of taxable income.
Tax Credit	The direct dollar-for-dollar reduction of an individual's tax liability.
Tax Deferral	The postponement of taxes to a later year, usually by recognizing income or a gain at a later time. Qualified retirement plans are a common method of tax deferral (IRA, 401(k), Keogh Plan).
Tax Lot	A record of all transactions and their tax implications involving a particular security in a portfolio. Recording the taxable purchase date provides the holder with the option of specifying exactly which shares to sell at a later date in order to reap tax advantages.
Tax Shelter	Any technique which allows one to legally reduce or avoid tax liabilities.
Tax-Deductible	An item or expense subtracted from adjusted gross income to reduce the amount of income subject to tax. Tax authorities specify the items that can be deducted from gross income for the purpose of reducing taxable income, and the specific rules governing the deductibility of each of these items. Some examples of tax-deductible items include mortgage interest, state and local taxes, unreimbursed business expenses, and charitable contributions.
Technical Analysis	A method of evaluating securities by relying on the assumption that market data, such as charts of price, volume, and open interest, can help predict future market trends. Technical analysts believe that they can accurately predict the future price of a stock by looking at its historical prices and other trading variables. Technical analysis assumes that market psychology influences trading in a way that enables predicting when a stock will rise or fall. For that reason, many technical analysts are also market timers, who believe that technical analysis can be applied just as easily to the market as a whole as to an individual stock. Unlike fundamental analysis, the intrinsic value of the security is not considered.
Ticker Symbol	A system of letters used to uniquely identify a stock or mutual fund. Symbols with up to three letters are used for stocks which are listed and trade on an exchange. Symbols with four letters are used for Nasdaq stocks. Symbols with five letters are used for Nasdaq stocks other than single issues of common stock. Symbols with five letters ending in X are used for mutual funds.
Time Decay	The ratio of the change in an option's price to the decrease in its time to expiration.
Time Spread	An option strategy involving the purchase and sale of put options and call options having the same strike price but different expiration dates.
Time Value	The amount by which an option's premium exceeds its intrinsic value.
Total Return Index	An index that calculates the performance of a group of stocks assuming that all dividends and distributions are reinvested. Examples include the S&P 500, the Russell 2000, and the Wilshire 5000. This method is usually considered a more accurate measure of actual performance than if dividends and distributions were ignored.
Trader	One who buys and sells securities for his/her personal account, not on behalf of clients, or an investor who holds stocks and securities for a short period of time to profit from short-term gains in the market. Stock selection is generally based on technical analysis rather than fundamental analysis. The IRS offers some tax benefits to traders: interest expense can be deducted without itemizing, and trading seminar and home office expenses can be deducted.
Trade Date	The date on which the transaction occurs; 1 to 5 days before the settlement date, depending on the type of transaction.
Trendline	A technical analysis formation created by drawing a line connecting a series of descending tops, descending bottoms, ascending tops or ascending bottoms. Some technical analysts look for prices breaking through trend lines on the belief that those stocks have broken through a resistance level and are headed in a new direction.
Triple Exemption	A bond or bond fund whose dividends and interest are exempt from Federal, state and local income taxes for investors in the appropriate locations.
Triple Witching Hour	The final hour of the stock market trading session on the third Friday of March, June, September, and December, when option contracts and futures contracts expire on market indexes used by program traders. The simultaneous expirations often set off heavy trading of options, futures and the underlying stocks, which can cause large fluctuations in the value of their underlying stocks.
Uncovered Call	A short call option position in which the writer does not own the corresponding number of shares of the underlying security, or has not deposited in a cash account an amount equal to the exercise value of the call. Also referred to as a "naked" call.
Uncovered Option	A call option written (uncovered call) or a put option purchased (uncovered put) without ownership of the underlying asset. Also referred to as a "naked" option.
Uncovered Put	A short put option position in which the writer does not have the equivalent short position in the underlying security, or has not deposited in a cash account an amount equal to the exercise value of the put. Also referred to as a "naked" put.
Underlying Security	In an option contract, the security or commodity that is delivered when the contract is exercised. In securities, the common stock that is the basis of the company's other types of securities, such as stock options or preferred stock. Exceptions include index options and futures, which cannot be delivered and are therefore settled in cash.
Unlimited Risk	An investment whose loss is potentially unlimited. Examples include short selling and futures trading.
Unrealized Gain	Profit which has been made but not yet realized through a transaction, such as a stock which has risen in value but is still being held
Unrealized Loss	Loss which has occurred but has not yet been realized through a transaction, such as a stock which has fallen in value but is still being held.
Value Averaging	An investment strategy designed to reduce volatility in which securities are purchased at regular intervals in amounts which increase when the market drops and decrease when the market rises.
Value Investing	An investment style which favors good stocks at great prices over great stocks at good prices. Utilizes such valuation measures as price to book ratio, price/earnings ratio and yield.
Vertical Line Charting	A technical analysis tool which charts the high, low, and close of a given security each day, in an attempt to spot patterns that might help predict future price movements.
Volatility	The relative rate at which the price of a security moves up and down. Volatility is found by calculating the annualized standard deviation of daily change in price. If the price of a stock moves up and down rapidly over short time periods, it has high volatility. If the price almost never changes, it has low volatility.
Volume	The number of shares, bonds or contracts traded during a given period, for a security or an entire exchange.
Wash	A situation in which two actions cancel each other out. An example is a gain and a loss of the same size.
Wash Sale Rule	An IRS rule prohibiting a taxpayer from claiming a loss on the sale of an investment if that same investment was purchased within 30 days before or after the sale date.
Writer	The seller of an option contract. Also referred to as a "grantor" or "option writer".
Yield	The annual rate of return on an investment, expressed as a percentage. For securities, the annual dividends divided by the purchase price. For bonds, the coupon rate divided by the market price. Neither are an accurate measure of total return since capital gains are not factored in.